Tiger Cub John Griffin’s Long-Term Stock Picks
Meena is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Insider Monkey tracks quarterly 13F filings from hundreds of hedge funds, including Tiger Cub John Griffin’s Blue Ridge Capital, as part of our work developing investment strategies (for example, according to our research the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year).
The most recent round of 13Fs is a bit old -- they disclose many of a fund’s long equity positions from the end of Q1 2013 -- but we can still make use of them for looking for long-term picks in a fund’s portfolio (the idea being that the investment team probably still owns a large amount of these stocks). Read on for our quick take on the five largest holdings in Blue Ridge’s portfolio in which it owned at least $100 million at the end of March 2011, or see the full list of the fund's stock picks over time.
Medical instruments and equipment
Griffin and his team owned a little more than 5 million shares of Thermo Fisher Scientific (NYSE: TMO) according to the most recent filing. The $32 billion market cap medical instruments and equipment company has been growing its earnings (net income was up over 20% in the first quarter of 2013 versus a year earlier), but revenue growth has been more modest. As a result, investors should be concerned as to how sustainable earnings growth, primarily through expanded margins, might be. The trailing P/E is 26 and so, it should probably be avoided on valuation.
Blue Ridge maintained a position of 6.5 million shares in Dollar Tree Stores (NASDAQ: DLTR) throughout the quarter. The dollar store has managed to continue its history of improved financials, with revenue rising 8% in its most recent quarter compared to the same period in the previous year and net income up 15%. It also offers considerable protection from economic conditions with a beta of 0.1. However, investors attracted by its defensive characteristics and historical growth have bid Dollar Tree up to a trailing P/E of 19.
Three more of Blue Ridge’s long-term picks
The fund has also been a long-term owner of Liberty Global (NASDAQ: LBTYA), the $21 billion market cap provider of TV, broadband, and phone access. The company recently purchased Virgin Media as part of its growth strategy, and reports from even before that the acquisition has shown rising sales. At current prices, Liberty Global’s enterprise value is more than 10 times trailing EBITDA, but partly due to overall strength in the industry, Wall Street analysts are bullish. High EPS growth expectations going forward result in a five-year PEG ratio below 1.
Range Resources (NYSE: RRC) had been one of Griffin’s top picks two years ago, and he still had 3.2 million shares in his portfolio at the beginning of April. A $12 billion market cap natural gas and oil company, Range has apparently been hit hard by low natural gas prices. Production has been up, but poor market conditions mean that even with the sell-side expecting considerable improvements next year, the stock is valued at 36 times forward earnings estimates. Investors should prefer to look for less speculative ways to play natural gas.
Rounding out our list of Blue Ridge’s long-term stock picks is Amazon. Amazon’s earnings have been very low on a trailing basis, and even with analysts looking for something of a turnaround in the company next year, the forward earnings multiple is over 90. Bulls on the stock believe that Amazon will soon be able to shift into a profit-capturing mode following its period of expansion, but that seems like a risky move to us. Billionaire Steve Cohen’s SAC Capital Advisors was buying the stock in the first quarter of the year (find Cohen's favorite stocks).
These long-term picks from Griffin and his team are generally highly dependent on future earnings growth, something that’s risky to rely on when a company’s current business can’t justify its valuation. Investors might look at Dollar Tree as well as other dollar stores to see if that industry can support substantial growth over the next several years; that stock, or one of its peers, might have enough solid prospects to make it worth considering at current prices.
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This article is written by Matt Doiron and edited by Meena Krishnamsetty. They don't own shares in any of the stocks mentioned in this article. The Motley Fool recommends Range Resources and Thermo Fisher Scientific. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!